HOPEFULLY THE THEORY OF MEXICAN CHIPS WILL PREVAIL

Trump's tariff threats destroying business confidence and certainty.

HOPEFULLY THE THEORY OF MEXICAN CHIPS WILL PREVAIL

We always suspected that the second Trump presidency would be volatile, uncertain, and chaotic, but few would have guessed just how chaotic it would turn out to be, and unfortunately there is still a long way to go. For business, for consumers, and for virtually every government around the global the mantra is deep uncertainty and this does not bode well for future economic activity or political stability.

Last weekend we had the spectacle of Trump announcing a 50 per cent tariff on all imports from the EU effective from June 1^st, but then he rowed back a couple of days later following a very fruitful telephone conversation with Ursula von der Leyen. This marked something like the 58^th specific tariff announcement from Trump and the saga runs on. Over the weekend just passed he said he would impose 50 per cent tariffs on all steel and aluminium imports, and he accused China of reneging on its agreement with the US. Strange times indeed.

On Wednesday last the US Court of International Trade ruled that that Trump had wrongly used the International Emergency Economic Powers Act to slap tariffs on almost all of the US trading partners. Then a federal appeals court temporarily reinstated many of the tariffs. This short-term relief will now allow Trump’s appeal process to proceed. Meanwhile, the EU and China and many others will engage in negotiations with the administration in an effort to avoid a cliff edge situation in early July.

How can any sort of longer-term or indeed short-term planning proceed in an environment of such uncertainty? Personally, if I were a business anywhere contemplating an investment project or hiring more labour, I would put everything on hold, because one has no idea what type of conditions will prevail in weeks or months down the road.

One benign interpretation is that the by now well-flogged term, ‘TACO’ president will win the day. For those who haven’t heard the term it means Trump Always Chickens Out. This term was coined by the Financial Times columnist Robert Armstrong, and is a notion that the markets and others are latching on to.

TACO is certainly influencing market behaviour. Despite all of the turmoil and uncertainty, equity markets almost everywhere ended May in decent positive territory. For example the S&P 500 is now back at levels last seen in February, before the Rose Garden fiasco on 2^nd April. If the markets believed that Trump will ultimately deliver on everything he promised or threatened, markets should be deep in the red at this stage.

If delivered, the Rose Garden reciprocal tariffs would take US tariffs back to levels last seen when the Smoot-Hawley Tariff Act of 1930 was implemented. This tariff act was designed to protect American farmers and businesses from foreign competition, but it ultimately prolonged and deepened the great depression which wiped out the 1930s. If the Rose Garden reciprocal tariffs were to materialise, the economic impact would be similar, but this possibility is not being considered by the markets. Indeed, the US consumer confidence reading from the Conference Board over the past week showed the strongest monthly rebound in 4 years from a 5-year low. Consumers seem to believe that Trump will chicken out. For all of our sakes, I hope this proves prescient.

Apart from the threatened tariff, many of Trump’s other policies should give deep cause for concern. The ‘big beautiful tax bull’ that Trump is pushing through Congress would add significantly to US debt levels and would widen inequality. The wild west he is trying to create in the Crypto world, the world of AI, and his regulatory approach to the banking system should all give cause for deep concern. His two sons at a Crypto conference in Las Vegas expressed a heartfelt desire to use crypto to wipe out the US banking system.

On and on it goes, and where it ends nobody knows. Here in Ireland the threats from all of these developments are very real, but unfortunately much is outside of our control. I have spoken many times of the necessity to diversify our external trade relations, and in this regard it is good to see Government pushing hard to ratify the Canadian trade agreement, CETA; our FDI exposures; and build up the indigenous SME-dominated economy. To me one of the most significant and related events over the past week was the stark warning from Uisce Éireann about the dire need for heavy investment to facilitate the delivery of Government housing targets. Hopefully, Government will now step up to the plate and do what is necessary to begin the process of addressing the housing crisis in a meaningful way.